Will Mukesh Ambani step in to save Kingfisher Airlines?

Will financially distressed Kingfisher Airlines finally be rescued? And will its white knight in shining armour be Reliance Industries’ Mukesh Ambani?

If the current buzz is to be believed, that’s quite possible. Two media reports, one in Business Standard and another in Hindu Business Line, speculate that Ambani, India’s richest man, might be close to buying a stake in the sinking airline.

“The buzz has grown louder after Mallya was seen walking up to Ambani during an IPL match,” the Business Standard report said. “For the last 48 hours, group SMSes and street talk have intensified that what started at the cricket stadium will end in the boardroom.” Not surprisingly, Kingfisher’s stock also jumped 7.5 percent to Rs 18.65 on Wednesday on the rumour.

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Business Line also harps on the same theme (Ambani might buy the airline) and adds that as part of the rescue package, Reliance, India’s largest private-sector conglomerate, would also get Mangalore Chemicals and Fertilisers, in which the UB group, which owns Kingfisher Airlines), holds a 30.4 percent stake.

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The report also said that when contacted, a Reliance official said he was unaware of any such development, while Kingfisher’s spokesperson was not available for comment.

Interesting. Reliance didn’t quash the rumour outright this time. Ambani’s name first cropped up as a potential suitor for the airline last November, but a company spokesperson denied Reliance was interested back then.

Who knows, perhaps things are different this time – or perhaps not. Of course, as exciting as this may all seem, there’s still the possibility that this latest rumour could turn up zilch. Takeover/stake buying rumours have swirled around Kingfisher frequently in the past.

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Previous reported contenders for purchasing a stake in the airline include UAE-based Etihad Airways, Singapore Airlines and the International Airlines Group, the holding company of British Airways and Iberia. Even Hong-Kong based distressed debt firm SC Lowy Financial had been named as a potential investor.

Kingfisher is desperately in need of funds. The airline is now down to operating just 16 aircraft from more than 60 six months ago. It owes cash to tax authorities, fuel supplies, airport authorities, aircraft lessors and banks. Even its employees received their salaries after an agonising wait of four months. Since the airline is currently struggling to even secure funds for day-to-day operations, it also has absolutely no way of paying of its debt of more than Rs 7,000 crore.

Meanwhile, its operations inch closer to a total shutdown.That’s why it needs an investor/funding as soon as possible.

In the past, Kingfisher has been urging the government to increase the foreign direct investment limit in airlines as it claimed foreign airlines are interested in investing in the company, but are holding back because of a lack of government approval.

India currently bars foreign airlines from picking up stake in Indian carriers, although foreign investors are allowed to hold a cumulative 49 percent. According to media reports, the government is likely to decide on the proposal to allow foreign airlines to buy a stake of up to 49 percent in local carriers as early as Thursday (12 April).

Of course, Kingfisher might not need a foreign saviour if it finds a local one instead.